Thursday, March 19, 2015

Norway holds rate but sees "prospects" for rate cut

Norway's central bank maintained its key policy rate at 1.25 percent but said the outlook was weaker than it had forecast in December and if economic developments ahead "are broadly in line with that projected, there are prospects for a reduction in the key policy rate."
Norges Bank, which in December cut its rate by 25 basis points to counter the risk if a pronounced economic downturn, said so far the impact of that rate cut had been relatively small and house prices were still rising at a fast pace.
But oil prices have continued to drift down so activity in the petroleum industry may decrease while wage growth last year was weaker than projected and is likely to grow less than expected.
While Norges Bank left its rate steady, it added that policy rate should lie in an interval of 0.5 percent to 1.50 percent during the period ahead to the next policy report in June.

"The key policy rate was reduced in December to counter the risk of a pronounced downturn in the Norwegian economy on account of lower oil prices. So far, the effects on the real economy have been relatively small, and house prices are still rising at a fast pace. The key policy rate has therefore been left unchanged", says Governor Øystein Olsen.

Developments in the Norwegian economy have been broadly in line with that projected in the December 2014 Monetary Policy Report. Inflation is close to 2.5 percent. Unemployment has remained stable and been slightly lower than projected. At the same time, the outlook ahead is somewhat weaker than anticipated in December. Oil prices have continued to drift down and activity in the petroleum industry may decrease to a further extent than assumed earlier. Wage growth in 2014 was lower than projected and there are expectations that wages will also in the period ahead increase somewhat less than projected earlier. Several central banks have eased monetary policy in recent months and the expected increase in foreign policy rates has been pushed further out.

"If economic developments ahead are broadly in line with that projected, there are prospects for a reduction in the key policy rate", says Governor Olsen.

At its meeting, the Executive Board decided to keep the key policy rate unchanged at 1.25 percent and concluded that the key policy rate should lie in the interval ½–1½ percent in the period to the publication of the next Report on 18 June 2015."